Oligopoly

Stmt: When oligopoly firms cheat on price fixing agreements, the resulting price and output quantity approaches that of perfect competition. Correct / incorrect?

correct I think.

Had both of them ‘not cheated’, it would have lead to a better market?

If both do not cheat they restrict output driving the price up the supply curve.

it could lead to cartel…hence no good… but according to the prisoner dilemma, according to information inefficiencies, both will try to cheat of the other, even the gain they will receive is less that the one they could get if they cooperate

To note: this is a prisone dilemma where Nash Equilibrim is Inefficient.

Once again, that was another question on the mock exam.

amit_edge Wrote: ------------------------------------------------------- > Stmt: When oligopoly firms cheat on price fixing > agreements, the resulting price and output > quantity approaches that of perfect competition. > > Correct / incorrect? SOUNDS RIGHT. But firms don’t cheat often b/c they rather collude.

daj224 Wrote: ------------------------------------------------------- > amit_edge Wrote: > -------------------------------------------------- > ----- > > Stmt: When oligopoly firms cheat on price > fixing > > agreements, the resulting price and output > > quantity approaches that of perfect > competition. > > > > Correct / incorrect? > > > SOUNDS RIGHT. But firms don’t cheat often b/c they > rather collude. According to the game theory component of the econ book, it is always advantageous for them to cheat.

> > According to the game theory component of the econ > book, it is always advantageous for them to cheat. HMMM, you are ahead of me. Sorry. But collusion is also part of game theory, that is what I wanted to throw out there